FTI to spin off tech division

Company says it plans to use IPO money mainly to pay off debt

FTI Consulting Inc. plans to spin off its fast-growing technology division, potentially bringing the Baltimore company hundreds of millions of dollars to position itself for another round of acquisitions.

FTI, a business advisory firm best known for helping struggling companies reorganize, said yesterday that it expects to sell a minority interest in the technology segment through an initial public offering. It valued that minority stake at $600 million to $700 million. Within a year of the IPO, it said, it intends to distribute the rest of its ownership stake to FTI shareholders.

The company said in a statement that it would use the IPO money mainly to pay off debt. A spokesman declined to comment further.

FTI - which employs more than 3,000 worldwide and about 230 in Maryland - has been on an acquisition spree this year, buying 10 companies. Its cash reserves, $360 million at the end of last year, were half that by the end of June. Debt fell slightly to $568 million.

Tim McHugh, an analyst at William Blair & Co. in Chicago who follows FTI, called the company's financial structure "quite reasonable, but this potential transaction obviously could provide additional capital." That would mean money for more acquisitions, he said.

The technology division specializes in "e-discovery" software that helps companies sort through reams of e-mail and documents to get information for litigation, mergers and the like. It produced $56.3 million in revenue during the three months ending in June, up 50 percent from a year earlier, FTI said. That was about 17 percent of the company's total sales.

"I think this business is capable of generating more than $300 million of revenue in 2009," said McHugh, who does not own FTI stock.

FTI, which expects to register for the IPO by the end of the year, did not say what percentage of its stake it intends to sell. Jim Janesky, managing director in research with Stifel Nicolaus, guessed about a third.

The market for IPOs isn't great overall, but it's ripe for a company that does well when the economy is faltering, he said. That's true of the technology business, just like FTI's other services.

"When there's increased regulatory activity, restructuring work, bankruptcy work, that naturally leads to an increase in e-discovery of legal documents," said Janesky, who also does not own stock in FTI.

There have been 126 IPO filings this year, compared with 210 during the corresponding period last year, according to Renaissance Capital's IPOhome.com.

FTI, which reported its second-quarter earnings yesterday, said profits for the company as a whole were $35.4 million, up 53 percent from the second quarter of last year. Revenue increased 41 percent to just under $338 million. Jack Dunn, president and chief executive, said in a statement that the credit crunch has driven up demand for FTI's help from businesses such as home builders and subprime lenders.